The Cyprus IP Box Regime - 2.5 Corporation Tax & 0% Dividend Tax (years up to 2025)

Simple Guide on the Process, Eligibility and Taxation of Cyprus IP Box Companies

This article applies for years up to 2025. From 2026 the IP Box effective tax rate is 3% and not 2.5%. All the rest of the information is still applicable.

Cyprus IP Box Explained

The Cyprus IP Box is a special tax status given by discretion by the Cyprus Income Tax Office for companies which develop their own software or applications and which users can take advantage off. 

The special tax status is the effective 2.5% corporation tax on profit associates with the development. Profits by the company which are not related to the platform, application or franchise are not covered by the scheme and they are taxed under the normal applicable Corporation Tax (12.5% in 2025).

The Process

The process requires the applicant, a Cyprus Incorporated Company to apply with the assistance of an audit & assurance firm like CYAUSE Audit Services to the income tax office requesting it to be taxed subject to the IP Tax laws. The application form is escorted by a report prepared by the tax consultant who analyses in detail the business model, revenue streams, eligible costs, functionality, usage and eligibility of the Company to this specific tax scheme.

The application is similar to the tax ruling where a government fee applies; Euro 2,000 for expedite process (less than 2 months response) or normal process (less than 4months response). The audit & assurance firm will also charge for its work with fee ranges varying depending on the complexity of the case form Euro 3,000 - Euro 4,500 + VAT.

Once a positive response is provided by the Cyprus Income Tax Office then the company at the year end can apply the reduced rate with the help of its tax advisers or auditors.

Can the Company Perform Other Services

The company can perform other services as well which are not related to the IP Box income but this is not recommended as they will be subject to the normal corporation tax rate. As a result, the accounting of the company must be very detailed separating the costs and revenues with each revenue stream so that the Corporation Tax Computation is accurately derived for both rates; reduced rate of 2.5% and the ordinary rates 12.5%.

Most companies elect to create a company just for the IP box turnover and related costs; this is the company which will apply for the IP Box Tax Ruling and this company will only be dealing with the specified services in the tax ruling so that there are no issues of eligibility in the event of a tax investigation.

In the event you company has a tax investigation kindly contact us and we will be more than happy to assist you with the enquiry. 

Cyprus IP Box Company Taxation for Shareholders

ey create an additional Cyprus company/ies which will either be independent of the IP Company or belong to the same group (there are many combinations of the structure which we can help you with). This company will be dealing with all other products, services and expenses that are not related to the IP Box production and maintenance and will be subject to the normal corporation tax rate of 12.5% (for 2025).

Learn More: If you are interested in getting a deeper understanding of the IP Box Regime read more detailed articles here.

Cyprus being an international financial centre has managed to attract a plethora of wealth investors, entrepreneurs and IT Companies not only because of the IP Box Regime but also become of the now famous Non Dom Scheme which entitles overseas shareholders to a 0% dividend tax.

In other words, a Cyprus technology company owned by a non Cypriot not only it can be subject to Corporation Tax of only 2.5% but it will also be exempt from dividend taxes. Cyprus being a European Union Country with its advantages and off course disadvantages becomes a very attractive jurisdiction for an EU Corporate base.

What is the non dom and how can it be achieved?

The non dom is a tax status for individuals which if applicable are not subject to the Cyprus Special Defense Tax which applies to dividends, interest and rental income. In simpler words, a non dom is not subject to dividend tax when it takes out dividends from its Cyprus companies.

Eligibility

To be eligible for a non dom you must be someone who has become a Cyprus Tax Resident, has not being living in Cyprus 17 out of the last 20 years and have relocated to Cyprus and off course have commercial ties with the Republic; business activities via a Cyprus company.

Learn More

Detailed analysis of the Cyprus IP Box - Nexus Approach

Read detailed article about non domicile

Good bye UK Non Dom, Hello Cyprus Non Dom

Why so many technology companies are coming to Cyprus

Conclusion

The IP box regime is a beautiful tax measure which has been serving many technology companies of all sizes (even smaller entities with 1 person) for many years and which has brought its own economic boost to the island. The application process is seamless and workable and it is a measure that the Cyprus Income Tax office feels comfortable with promoting. Over the last 5 years we have seen an exponential increase in the number of applications we handle which means that Cyprus is a true contestant in this space as our IP Box clients are sophisticated (do their homework) and come from all over the world. 

Should you need any advice feel free to contact us at enquiries@cyprusaccountants.com.cy

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. Please consult with a professional tax advisor for advice on your specific situation.

CYAUSE Audit Services is an Audit & Assurance firm with offices in Nicosia and Limassol in Cyprus regulated by the UK ICAEW, International ACCA and the Cyprus ICPAC. 

Our firm has extensive knowledge and experience in local tax legislations, relocation consultation, international tax planning solutions and licensing of investment firms, funds and insurance agents / brokers. Our routine day to day services include accounting, audit, tax and advisory services to international businesses interested in relocating or establishing presence to Cyprus.

Our Partnership with  BKR International  (a USA association ranked number 10 in the world), ACCACE Circle (European Network) and 3E Accounting International, a Hong Kong Network, ensures that we are wired and closely connected in all jurisdictions, getting the latest corporate and tax news ensuring our tax planning is accurate and validated before finalisation. Being part of international networks ensures seamless collaboration with overseas experts and access to fast and accurate information on overseas tax and corporate legislations.

Feel free to contact us at enquiries@cyprusaccountants.com.cy or call us at +357 99 428 543.

Learn More about Cyprus Corporate Environment

Information about CYAUSE Audit Services and the Cyprus Corporate & Tax System can be obtained from our Website and our YouTube channel which provides valuable information about the Corporate & Tax Environment of Cyprus.